Armenia: Tougher Banking Laws Aim To Block 'Terrorist Funding'

Armenia has enacted a package of amendments to its liberal banking legislation aimed at preventing financing for international terrorist organizations from passing through its territory. The country's central bank will have sweeping powers to sanction those local commercial banks and their clients suspected of terrorist links. Officials in Yerevan say the changes were suggested by the United States following the deadly 11 September 2001 attacks on New York and Washington.

Yerevan, 19 November 2002 (RFE/RL) -- The toughening of laws regulating banking is the latest Armenian contribution to the ongoing U.S. war on terrorism. Having already opened its airspace to U.S. military aircraft bound for Afghanistan, the small South Caucasus state hopes to stay in tune with global developments.

A bill recently passed by the Armenian parliament empowers the Central Bank of Armenia to block any financial transactions by those lending institutions or individuals that are suspected of "financing terrorism" or using "resources acquired in a criminal way." Their bank accounts would be automatically frozen pending further decisions by law-enforcement and judicial authorities.

The measures took the form of amendments to several Armenian laws. They were signed into law by President Robert Kocharian on 15 November and will take effect immediately after their official publication later this month. The chairman of the central bank, Tigran Sarkisian, said they stem from the Armenian government's international obligations to combat terrorism and money laundering. "This means that our banking sector now has appropriate tools to thwart activities of such organizations. Furthermore, we have a list of those [terrorist] organizations and have already delivered it to commercial banks," Sarkisian said.

In an interview with RFE/RL, Sarkisian indicated that the list is identical with one issued by the U.S. State Department each year. The document will be part of special antiterrorism guidelines for Armenian banks that will soon be drawn up by the central bank, their main regulatory authority.

Armenia's banking legislation is one of the most liberal in the former Soviet Union, placing no restrictions on foreign banks. They are free to open branches, own Armenian credit institutions, and move cash in and out of the country. The largest and most popular Armenia-based bank is owned by Britain's HSBC financial-services giant.

This legislative framework, officials say, could tempt anti-Western militant groups to use Armenia for channeling funds into various parts of the world. Until now, Armenian banks were not required to check the origin of their cash deposits. Under the newly passed amendments, the central bank will issue them a list of detailed information that they will have to demand from Armenian and foreign nationals opening bank accounts.

Furthermore, the central bank can now freeze those accounts if it thinks that they belong to terrorist groups. In that case, account holders will have to prove the absence of any terrorist links if they are to reclaim their money. Some Armenian lawmakers criticized this provision as a violation of the presumption of innocence during recent debates in the parliament.

But Sarkisian countered that any punitive action by the central bank would be investigated by law-enforcement agencies and could be challenged in court. He also dismissed speculation that the antiterrorism measures could make Armenia's banking sector less attractive to foreign investors and weaken the local cash-strapped banks' ability to attract capital from abroad. "Armenia's financial system remains reliable and favorable for those business entities or investors that want to engage in legal activities. In fact, this new legislative framework offers them additional incentives and protection," Sarkisian said.

Sarkisian and other government officials admit a direct link between the toughening of banking legislation and U.S. foreign-policy priorities since the 11 September terrorist attacks.

The matter has been on the agenda of the U.S.-Armenia Task Force, an intergovernmental body coordinating multimillion-dollar U.S. assistance to Armenia. According to Armenian Finance and Economy Minister Vartan Khachatrian, Yerevan assured Washington earlier this year that, "if we discover that any of our banks has accounts that could be used for terrorist acts, they will be immediately frozen."

Officials at the U.S. Embassy in Yerevan could not be reached for comment. In the past, U.S. officials have praised the Armenian government's cooperation with the U.S.-led global fight against terrorism. Over the past year, U.S. warplanes have used Armenia's airspace for antiterrorism missions in Central Asia.

Authorities in Yerevan claim that so far there have been no instances of outlawed militant groups attempting to use Armenian territory, financially or otherwise.

Vartan Yeghiazarian is the chief of Interpol's bureau in the Armenian capital. He said, "Thank God, we have avoided such problems so far." But despite that, Yeghiazarian said the authorities remain on their guard. "A special [antiterrorism] database has been created here, and we are very closely looking at the possible entry of such individuals into Armenia, not just their physical presence in Armenia, but also their possible financial and economic activities, connections and so on," Yeghiazarian said.

The United States may be particularly attentive to one of Armenia's neighbors and closest partners, Iran. The Islamic Republic was accused by President George W. Bush of being part of a global "axis of evil" earlier this year. Although it has not been a target of the U.S. antiterrorism drive, Tehran remains on the State Department list of governments sponsoring international terrorism.